THE MORNING BUZZ: Despite Good Times, VOD Is Always a Specter

Analysts, who were hailing broadband, dot-com and Internet stocks not so long ago, are now taking a liking to good old video chains. The Robertson Stephens brokerage recently bestowed Hollywood Entertainment Corp. and Blockbuster with a "buy", and this week SWS Securities initiated coverage of Movie Gallery with a "strong buy."

How quickly the tables have turned.

But history has proven it's not prudent for this industry to assume it has won the analyst relations battle with video-on-demand (VOD). Yahoo this weekend queried customers about paying $2.95 for VOD movies. Battered by the technology and advertising busts, the Web industry is desperately looking for its killer app – and our business is among the top candidates.

Ah, you say, VOD has reared its ugly head many times and we've always survived. Indeed, in my first week at Video Store Magazine eight years ago the business was rocked by news of a TeleCommunications Inc.–Bell Atlantic merger designed to deliver VOD. At the time, Bell Atlantic chairman and CEO Raymond Smith declared video stores "no longer viable." Video stores came back with a vengeance after that, only to fall out of favor once again when the Internet dazzled Wall Street.

The difference in the threat this time, it seems to me, is the desperation of our rivals. Battered telecommunications companies have spent a lot of money building out broadband, PC makers are on the ropes and numerous dot-coms like Yahoo – if they have survived – are desperately looking for a way to make money. Pardon me if I'm a little paranoid.

NBC anchor Tom Brokaw moderated a discussion of technology issues, "Silicon Summit III," broadcast this weekend on MSNBC. Among the panelists were representatives from Amazon, PC-maker Gateway and AOL Time Warner. One of the issues discussed was entertainment piracy – a practice Disney chief Michael Eisner recently told a Senate committee was the tech industry's "killer app." After that showdown, panelists seemed to strike a conciliatory tone during the broadcast, admitting the industry needs to get together with content providers to find a piracy solution that doesn't involve Congress. If they're serious, this could spell trouble.

The ultimate arbiter of how movies are delivered to the home will be the consumer. If the video industry can continue to satisfy consumers better than VOD purveyors, we'll have nothing to worry about. But if our rivals ever get their act together – and the current desperate climate may speed that process – then we'll have a real fight on our hands.